This study applies rent adjustment models for ten major European office markets. We capture long-run equilibrium relationships of demand and supply variables and their short-term corrections in a two equation error correction model. We test whether the local nature of office markets makes a model based on national economics inaccurate if local and national markets do not move in tandem. For this we employ a unique dataset, which includes both disaggregated and national variables to model changes in real prime rents for a group of premier and second tier office market cities across Europe for the period 1990–2006. We explicitly compare results that are derived from models that include different levels of geographic aggregation. Results of the two stage error correction model indicate that international office rents adjust to short-run changes in office related economic activity, lagged rent changes, and to the deviation of rents from their long-run values. At the same time our results offer no proof that error correction mechanism models for office rents improve significantly by specifying economic growth figures beyond the national aggregated level for the cities included in our analysis.
The Journal of Real Estate Finance and Economics – Springer Journals
Published: May 7, 2008
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